GUIDING LINES: A Company Home

Companies interested in custom-built offices are usually involved in the production sector of the economy whose internal rate of return does not exceed the rate of return on real estate. Russia's energy companies, with their large financial flows and high rates of return, are also active players in this market because they are interested in investing their spare cash.

Banks and other financial institutions, too, are showing greater interest. Last year the Siberian-Urals Petrochemical Company purchased two office buildings of 16,197 and 5,530 square meters at 16 Ulitsa Krzhizhanovskogo [street].

VIP Bank secured a freehold title to a 4,877-square-meter office center at 12/2-3, Ulitsa Bolshaya Gruzinskaya while the Insurance Company of Russia bought a 4,269-square-meter development at 3/3, Prospekt Mira.

In the majority of deals the buyers are domestic firms. Western companies are still afraid of buying property in the Russian capital; besides they are warded off by shady payment schemes where the price paid may differ substantially from that stated in the documentation.

Sale prices for class A and B offices continue to grow as supply remains low. Prime mansions are offered at prices noticeably higher than is the case for large office buildings. For example, offices in class A business centers range from $3,500 to $5,000 per square meter whereas the price of a square meter in a mansion runs to as high as $6,000. Class B offices are offered at $1,500 to $3,500 per square meter in multi-storied facilities, and up to $4,500 per square meter in detached mansions.

Few companies can afford custom-built offices in Russia. The main problem is finding an experienced respectable developer who would take up the project. In Moscow there is just a handful of companies that are successful in that area, including Sistema-Gals, CMI Development, and Forum Properties, but they already have enough contracts to last them for years.

Despite the scarcity of custom-built offices, experts believe that the market has good prospects and expect the number of companies developing projects for their personal use to grow in the future.